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Blog, Payment Automation

Adding Up the Costs of Poor Payment Processes

Dashia Starr
August 9, 2018

 

Here’s the deal. Payment processes come with a price. Why are companies spending so much on payment processes? It’s no secret manual, paper-based payment processes present problems including errors, lost files, and delays, but these problems are also costing your business more than just a few pennies.

The number one reason why your business is spending more than you could be saving from payment processes is simple–manual processes. Companies spend more time and money than necessary on slow, scattered, paper-based payment workflows. Consider the time and money spent manually entering a printed invoice into your accounting system, then continuously tracking approvals, the purchase order, and other details just to pay the vendor on time. And often, this manual process results in late payments.

Paying the Price of Poor Payment Processes

In the age of FinTech trends and the thirst for efficiency, most businesses are starting to consider FinTech and automation processes. The problem is companies are still mixing automation with manual, paper-based payment processes to handle critical payment processes. Even though invoices may be stored in one portal, some companies still forward copies of invoices to the approver’s email, risking it getting lost in the process.

Ardent Partners points out that it costs most companies $14.38 to process a single invoice. Whereas, Best-in-Class businesses are only spending $2.52 per invoice, a five times reduction in invoice processing costs due to automated B2B payment processes.

Why the significant cost difference? Lower performing companies rely on manual invoicing processes which often lead to manual mistakes and lack of control. On the other hand, top performers take a “hands-off” approach by trusting eInvoicing to extract invoice details and manage invoice approval routing electronically. The alarming fact is only 19.2% of companies report their invoices are processed “straight through” without any additional manual labor—impacting the profitable bottom line. The more money spent on processing costs, the fewer opportunities to save.

There’s also the buried cost of hidden fees in most payment processes. CFO shares how to add up accounts payable processing costs. Simply put, all payment process costs come down to the cost per invoice. CFO provides a simple equation to add up the cost.

“The total cost to process accounts payable includes labor, systems, outsourcing, overhead, and other AP process costs. This metric is calculated by dividing the total cost to process AP by the total number of invoices processed by the business entity.”

Relying on employees to manually enter and process invoices often increase the costs due to longer payment processing times, for most over 10 days.

Increasing the Financial Fortune of Fraud

The risk of fraud comes at a high cost for businesses, especially for those who lack centralization and control of payables. If your financial department lets one invoice slip through the cracks without proper review and approval, your company could plummet into financial fraud, paying scammers thousands of dollars without realizing it.

According to a recent Proofpoint report, most fraudsters are using Business Email Compromise, otherwise known as email fraud. They’re borrowing commonly known titles and personas, and carefully targeting more employees with subject lines requiring urgent action. And no surprise, a large percentage of these subject lines request payment.

Getting caught up in email fraud can cost your organization big bucks. In fact, in 2017 the IC3 of the FBI received over 15,000 BEC complaints and resolved claims totaling over $675 million.

No payable is too small to double check. As a precaution, double check every payment for any suspicious supplier, contact information, and cross-check the purchase order with the invoice for accuracy. There are a few best practices to reduce fraud, including requiring multiple approvers and keeping a clean, secure master vendor file, but the best precaution is to eliminate all decentralized payment processes.

Keep a tight, streamlined payment process that controls the invoice from start to finish. With payment automation solutions, suppliers can send invoices any way they choose, and all will be stored safely in one cloud-based portal. Once an invoice is entered into the portal, it can be routed to approvers for review without printed copies. After the invoice is approved, payment can automatically be disbursed. With these improved controls, the invoice and payment are tracked continuously in one portal for administrators and approvers to review at all times. Most payment automation solutions also provide Positive Pay to generate fraud reports for every paper check, screening for duplicate invoices and fraudulent attempts.

Without controlled processes like these, your business will always be worried about the fraudster’s next move to dip into your company’s funds. The bottom line: you’ll spend more time and money creating internal fraud processes that only temporarily block scammers from accessing your account while racking up costs for your company.

Lurking Late Vendor Payments

Let’s face it, late vendor payments lead to late fees. Sure, some vendors are more generous than others, but developing a habit of paying late has its impacts including reduced cash flow and poor supplier relationships.

More importantly, it’s all about how much your business could be saving. Most suppliers offer early discounts or lower rates for early payments. There are a few crucial B2B payment process steps which hinder savings. PayStream Advisors reports that the top pain points include lengthy approval cycles, missing invoice information, and lost invoices.

These pains are also topped with handling numerous vendor payment methods. With payment automation solutions, AP managers can use batch processing to approve multiple payments at once—saving time and money.

When paying vendors late, your business is bound to play the never-ending game of catch-up. Constantly paying vendors late can negatively impact your budgets, reports, forecasting, and spend. Even worse, your suppliers are at risk with debt from expected payments from your company for goods and services that were delivered, but not paid for.

The best way to save your business time and money is to implement a streamlined payment process that pays vendors ahead of schedule. Developing a habit of paying early leads to early discounts on payments, strengthening your company’s supplier relationship and financial health.

The True Cost of Poor Cash Flow

To run a financially healthy business, a steady stream of cash flow is imperative. There needs to be enough cash to cover business needs, and falling short can impact critical expenses and investments that affect the company’s growth. Often, cash flow is where a lot of small businesses fall short in their financial department.

Payment processes profoundly impact cash flow. Your finance department will look at accounts payable as “outgoing cash” for your company’s cash flow statement. A recent Bizfluent article shared how to manage your cash flow statement and your payables

“To plan incoming and outgoing funds month by month, you should summarize the bills that are due each month and enter the total as an outgoing sum, which will be subtracted from your incoming cash to show your remaining cash on hand.”

Not having visibility into upcoming payments can impact the cash flow. For example, if an unexpected invoice comes in that wasn’t accounted for and there’s not enough cash, the cash flow could impact another expense or investment.

How to Turn A Profit on Payables

When it comes to decreasing the payment process cost, most companies don’t know where to start. High-performing businesses start with purchasing and accounts payable automation. Electronic payment systems and processes eliminate costs associated with manual processes, including paper and bank processing costs.

Chances are you’ve already automated some steps in your payment processes, but here are a few questions to consider for a smoother, streamlined payment process.

  • How long does it take to process a single invoice and distribute payment?
  • How often does your finance department make late payments?
  • What is the biggest hurdle in your finance department’s payment process?
  • How can your company improve the current cash flow?
  • What technology or support does your business need to save time and money?

 With streamlined payment processes, your business benefits with rebate programs, early payment discounts, and improved cash flow. Your leaders will appreciate clear visibility and real-time payment reporting that eases the burden of big financial decisions.

Parting Payment Thoughts

Late payments can cost your business more than a late fee. Poor relationships with suppliers, low cash on hand, and limited visibility into finances. But these are just a few of the problems your AP department could face. With payment automation, your business can reap the benefits of rebate programs and early payment discounts that could result in big profits.

To learn more about the big benefits of payment automation, check out our free eBook, It’s Never Too Late to Automate. We’ll share how payment automation improves audits, month-end closing, and payment processes anytime, anywhere!

ABOUT THE AUTHOR

Dashia Starr

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